The Promise—And a Problem—of Donor-Advised Funds for Charity

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Donor-advised funds (DAFs), individual charitable accounts that can be used to make grants over a donor’s lifetime, are the fastest-growing way in which Americans set aside money for charity. The sharp growth of DAFs has also attracted criticism, including the allegation that the charitable arms of national financial-services firms—such as Vanguard Charitable, Fidelity Charitable, and Schwab Charitable—impose excessive fees to manage DAFs; and that, because assets placed in DAFs may not be distributed for years, DAFs are “undermining” American charity.

This report from the Manhattan Institute argues that DAFs are a legitimate vehicle for charitable giving and not a ruse to avoid taxes. Additionally, the use of national financial-services firms to manage DAFs is not diverting money from charitable giving. The management fees charged by such firms are comparable with those charged by local community foundations, the other major “sponsor” (i.e., manager) of DAFs.